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IMF WORKING PAPER
©1990 International Monetary Fund
This is a working paper and the author would welcome anycomments on the present text. Citations should refer to anunpublished manuscript, mentioning the author and thedate of issuance by the International Monetary Fund. Theviews expressed are those of the author and do not neces-sarily represent those of the Fund.
WP/90/40 INTERNATIONAL MONETARY FUND
Research Department
.Private Investment inDeveloping Countries: An Empirical Analysis
Prepared by Joshua Greene and Delano Villanueva*
Authorized for Distribution by Mohsin S. Khan
April 1990
Abstract
This paper analyzes the effects of several policy and other macro-economic variables on the ratio of private investment to GDP in developingcountries. Using data for a sample of 23 developing countries over theperiod 1975-87, the econometric evidence indicates that the rate of privateinvestment is positively related to the real growth rate of GDP, publicsector investment, and to a lesser extent the level of per capita GDP,while it is negatively related to domestic inflation, the debt serviceratio, the debt-to-GDP ratio, and high real interest rates. There is alsosome indication that all but the last of these variables had a greaterimpact before the onset of the debt crisis in 1982, while the debt-to-GDPratio (a measure of a country's debt overhang) has become more importantsince then.
J.EL Classification Numbers:023, 121, 221
*The authors are grateful to Mohsin Khan and Peter Montiel for invaluablecomments and suggestions throughout this project, and to Ravina Malkani forsuperb research assistance.
©International Monetary Fund. Not for Redistribution
- ii -
Contents
I. Introduction 1
II. Recent Trends in Private Investment in Developing Countries 3
III. Factors Affecting Private Investment Rates 5
1. Theoretical analysis 62. Preliminary evidence regarding different factors 8
IV. Econometric Results 10
V. Conclusions 18
Appendix 20
Chart 1. Average Levels of Private Investment as a 4aPercent of GDP, 1975-87
Text Tables
1. Private Investment as a Percentage of GDP in 4Selected Developing Countries, 1975-87
2. Average Levels of Major Economic Indicators 9in Selected Developing Countries, 1975-87
3. Average Private Investment Rates over the 11Period 1975-87 for Countries with SelectedCharacteristics
4. Regressions for Private Investment Rates 13
5. Final Regressions for Private Investment Rates 16
Appendix Table I. Nominal Interest Rates on Selected 21Time Deposits in 23 Countries, 1975-87
References 23
©International Monetary Fund. Not for Redistribution
I • In£_CQ<luct.lQn
Since the beginning of the 1980s developing countries have experienceda pronounced slowdown in economic growth. The growth rate of real GDP,which for all developing countries averaged 5.5 percent a year during the1971-80 period, averaged only 3.3 percent a year during 1981-89 (IMF, 1989,pp. 78-79), On a per capita basis, the average growth in real GDP fell from3 percent a year during 1971-80 to less than 1 percent a year during1981-89. High among the reasons for this slowdown has been a decline ininvestment rates, which have been shown to be positively and significantlyrelated to real growth rates in a large sample of developing countries. I,/Gross capital formation in developing countries declined from an average of26.5 percent of GDP during 1981 to less than 23.5 percent during 1985-88(IMF, 1989, p. 80). I/
The decline in gross investment rates reflects many factors that haveaffected most developing countries during the 1980s. These include, interalia, falling prices for primary commodity exports, a decline in privateexternal financing, the presence of a large stock of foreign debt, and theimplementation of adjustment programs designed to restore balance ofpayments viability. While there may have been an overall decline ininvestment, the gross investment to GDP ratio has differed substantiallyacross countries and regions, remaining close to its 1981 level fordeveloping countries in Asia and Europe while falling significantly in otherregions. Over time, there have also been important differences amongcountries. For example, during the 1980s developing countries with recentdebt-servicing difficulties have experienced lower rates of gross capitalformation than have developing countries without such problems. Likewise,gross capital formation has, on average, been greater for developingcountries specializing in manufactured exports than for countries exportingprimary commodities--mostly minerals or agricultural products.
These differences in gross capital formation across countries havereflected variations in both public and private sector investment rates.The importance of public sector investment has been underscored during the1980s, as the adoption of adjustment programs led many developing countriesto reduce public sector investment activity as a way to cut fiscal deficits.Nevertheless, because public sector investment in most developing countriesis effectively a policy variable, economists have focused on private sectorinvestment as being more susceptible to extensive economic analysis. Alsocontributing to the interest in private investment activity is' recentresearch suggesting that private sector investment has been more directly
I/ See IMF (1988).2/ According to the same source, median levels of gross capital formation
have fallen even more sharply during this period, from 25.3 percent of GDPduring 1981 to 20.3 percent of GDP or less during 1987-89.
©International Monetary Fund. Not for Redistribution
related to economic growth in developing countries than has public sectorinvestment (Khan and Reinhart, 1990).
Despite the recognition that private investment plays a critical rolein generating economic growth, there has been surprisingly little researchon its determinants in developing countries. Stern (1989, p. 672), forexample, in his recent survey of development economics, notes that "whatdetermines investment" is very much an outstanding question in research oneconomic growth. Among the few recent studies on investment in developingcountries is Blejer and Khan (1984), which examined the impact of governmenteconomic policy on private investment in some 24 developing countries. Thisstudy found that the level of private investment activity was relatedpositively to the change in expected real gross domestic product (GDP),negatively to excess productive capacity (the shortfall of actual GDP fromits trend value), and positively to the availability of funds for privateinvestment (as measured by the change in bank credit for the private sectorand in the level of private capital inflows). The study also found that thelevel of private sector investment was a positive function of the trendlevel of government investment, which was taken as representing investmentin infrastructure, but not of deviations from that trend. This suggeststhat there is long-run complementarity of private to public sector invest-ment but short-run substitutability, in the sense that short-run increasesin public sector investment appear to crowd out private sector investment.
The present study is an attempt to learn more about the empiricaldeterminants of private investment activity in developing countries duringthe post-1974 period. Following the approach taken in a recent study ofnational savings behavior (Aghevli et al. 1990), this paper provides apreliminary look at how various macroeconomic factors have affected privateinvestment activity during this period in a number of developing countries.Among the factors examined are the following: (a) economic growth and percapita income level; (b) macroeconomic stability (as represented by lowinflation rates); (c) the level of real interest rates; (d) the size of debtservice burdens (as measured by debt service ratios and the magnitude ofexternal debt relative to GDP); and (e) the rate of public sector invest-ment. Because of the difficulty in identifying the theoretically correctspecification and obtaining the necessary data, this paper does not attemptto build and estimate a full-scale structural model of private investmentin developing countries. I./ Rather, it is more of an exploratory dataanalysis. Nevertheless, the results of this study may be useful inidentifying the more fundamental relationships between private sectorinvestment and macroeconomic variables in these countries, which can then beused to develop an, appropriate model of investment behavior in developing'economies',
I/ Examples of possible models are contained in Blejer and Khan (1984)and Sundararajan and Thakur (1980),
. 2 -
©International Monetary Fund. Not for Redistribution
- 3 -
The paper is organized as follows: Section II reviews recent trends inprivate investment activity across a group of 23 developing countries. I/Various patterns in private investment rates are identified, and these arecompared with public sector investment rates in the countries. Section IIIthen reviews a number of hypotheses that have been advanced for explainingdifferences in private investment rates. This section also contains acasual examination of these hypotheses, comparing average levels of thevarious indicators in countries with above- and below-average privateinvestment rates. The hypotheses are then tested econometrically in SectionIV. Pooled time-series, cross-section equations are estimated, relatingprivate investment rates to a number of economic variables, both for theentire sample period and for the pre-debt crisis (1975-81) and more recent(1982-87) time periods. The concluding section (Section V) of the paperdraws some implications from these findings and offers suggestions forfurther research. A statistical appendix describes the data sources for thepaper.
II. Recent Trends in Private Investment in Developing Countries
Data on private investment rates for 23 developing countries over theperiod 1975-87 have recently been assembled in the World Bank Group. 2/These data, summarized in Table 1, reveal several interesting patterns.First, there is a wide discrepancy in private investment rates acrosscountries. A few countries, in particular the newly-Industrializing andrapidly-growing Asian countries, exhibit very high rates of privateinvestment, often exceeding 20 percent of GDP. At the other extreme, less-affluent and more slowly-growing countries, such as Bolivia and Peru, haveexperienced much lower rates of private investment, sometimes falling toless than 10 percent of GDP. For most countries in the sample, privateinvestment averaged between 10 and 15 percent of GDP during most of the1975-87 period.
The data in Table 1 also indicate a significant decline in privateinvestment activity between the first part of the observation period,1975-81, and the 1982-87 sub-period, which has been characterized byrecurring debt crises in a number of developing countries. For the 23countries in the sample, the average level of private investment activitydecreased from 13.2 percent of GDP during 1975-81 to 11.0 percent in1982-87. This trend is illustrated in Chart 1, which shows a significantdecline in average investment rates after 1981. Although private investmentrates in a few developing countries, notably Korea and Singapore, increasedduring the 1980s, for most countries in the sample private-investment rates'decreased. In 'several" "cases' the 'decline was 'precipitous'. In "Argentina",
I/ The 23 countries are Argentina, Bolivia, Brazil, Chile, Colombia,Costa Rica, Ecuador, Guatemala, India, Kenya, Korea, Mexico, Pakistan, Peru,the Philippines, Singapore, Sri Lanka, Thailand, Tunisia, Turkey, Uruguay,Venezuela, and Zimbabwe.2/ See Pfefferman and Madarassy (1989).
©International Monetary Fund. Not for Redistribution
Table 1. Private Investment as a Percentage of GDP in Selected Developing Countries, 1975-87
1975
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
Guatemala
India
Kenya
Korea
Mexico
Pakistan
Peru
Philippines
Singapore
Sri Lanka
Thailand
Tunisia
Turkey
Uruguay
Venezuela
Zimbabwe
Mean (Unweighted)
17.
10.
20.
3.
11.
14.
12.
9.
11.
19
12
4
9
18
26
8
17
12
11
8
15
13
13
1
9
9
2
8
5
1
.6
,7
,3
.4
.6
.2
.6
.5
.2
. 7
.3
.7
.7
.8
.7
.2
1976
13.
8.
15.
4.
12.
15.
13.
14.
10.
11.
18.
12.
5
8
17
23
7
16
11
13
9
18
11
12
9
4
1
8
1
1
0
0
3
.6
.8
.8
.9
.7
. 7
.6
.9
.1
.6
.2
.0
.6
.2
.8
1977
14.4
6.9
15.7
7.5
9.6
14.2
13.4
13.0
10.3
12.1
20.7
11.9
6.2
8.3
16.5
21.6
7.2
18.6
10.9
13.2
8.2
23. S
10.1
13.4
1978
12.5
5.8
13.6
11.4
11.5
15.6
16.8
14.4
10.6
15.6
24.5
12.8
5.8
8.4
16.8
22.4
7.9
17.6
11.7
12.4
8.0
24 .5
8.4
13.5
1979
12.5
5.9
7.7
12.6
12.3
17.3
14.5
12.4
10.7
12.8
25.8
13.5
5.8
8.5
18.0
25.0
13.0
18.0
12.0
10.7
9'. 7
18.1
9.2
13.3
1980
13.
7.
14.
15.
11.
14.
14.
9.
10.
12.
23
13
6
9
18
26
12
16
13
9
11
13
10
13
0
3
5
6
4
7
,1
,8
,5
,9
.4
.9
. 4
.7
.4
.7
.9
.3
.3
.5
.4
.0
.6
.4
1981
9.4
. 3.8
12.0
17.5
12.0
15.2
11.7
8.4
10.7
13.4
19.8
14.7
6.1
11.4
18.5
30.4
12.7
15.8
14.8
8.1
10.7
9.8
13.4
13. 1
1982
8.
5.
11.
6.
11.
13.
13.
8.
10.
10.
21,
12.
5
11.
IB
31
13
15
15
8
7
7
10
12
9
0
7
5
1
1
0
8
6
6
,7
.7
.6
.5
.1
.9
.3
.3
.4
.1
.9
.7
.1
.1
1983
7.9
2.0
9.7
4.9
11.0
11.5
8.6
5.9
9.7
11.6
23.5
10.0
6.0
7.9
18.8
30.7
14.3
15.9
14.2
8.3
6.9
4.5
8.4
11.0
1984
6.9
1.6
9.5
7.3
10.0
13.7
9.0
5.8
9.4
10.7
23.3
10.8
6.1
6.9
14.5
31.3
11.9
16.1
13.6
8.3
5.2
6.6
10.6
10.8
1985
5.5
3.6
10.5
6.8
9.4
12.3
9.5
8.3
9.4
10.9
21.8
12.2
6.2
5.8
11.4
26.7
10.7
14.5
12.3
8.4
4.5
6.5
7.3
10.2
1986
6.0
4.9
12.3
7.0
9.3
12.8
9.8
8.1
10.4
11.8
22.4
13.3
6.1
9.3
9.7
21.9
10.6
14.1
10.5
9.8
4.4
6.8
7.8
10.4
1987
6.8
4.9
12.8
10.0
11.1
15.1
14.6
9.5
11.0
12.6
23.0
13.5
6.3
10.6
10.6
23.4
10.9
17.3
9.0
11.3
5.4
6.6
7.2
11.2
Mean Mean
1975-87 1975-81
10.4
5.6
12.8
8.9
11.0
14.2
12.5
10.0
10.2
12.2
22.2
12.7
5.9
9.0
16.0
26.3
10.9
16.4
12.4
10.2
7.7
12.5
9.8
12.2
13.3
7.3
14.4
10.4
11.5
15.4
14.0
12.0
10.4
12.9
21.8
13.1
5.8
9.2
17.8
25.2
10.0
17.2
12.4
11.3
9.4
17.5
10.9
13.2
Mean Public Debt
Sector Service
Mean Investment Difficulties
1982-87 1975 — 87 I./ in 1986-88
7.
3.
11.
7.
10.
13.
10.
7.
10.
11.
22.
12.
6.
8.
13.
27
12.
15.
12.
9
5
6
8
11
0
7
1
1
3
1
8
7
1
4
5
1
.1
.8
.9
.7
.0
.6
.5
.0
.7
.5
.6
.0
9.
7.
8.
6.
7.
7.
8.
5.
9.
8.
6.
8.
10.
7.
6.
12
12.
12.
16
11
5
12
8
9
4
4
6
6
9
1
8
0
1
8
9
U
.3
.6
.0
.4
.3
,1
. 3
t;
.2
.9
, i
. i
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes 1
No
No
No
Yes
No
Yes
Yes
No
No
No
No
No
Yes
Yes
No
Sources: Pfefferman and Madarassay (1989); IMF (1989); and estimates by the authors.
_!/ Ratio of public sector investment to GDP.
©International Monetary Fund. Not for Redistribution
Chart 1
Avejrage Levels of Private Investment as a Percent of GDP, 1975-87
©International Monetary Fund. Not for Redistribution
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©International Monetary Fund. Not for Redistribution
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for example, private investment as a share of GDP declined from an averageof 13.3 percent in 1975-81 to 7.0 percent in 1982-87. In Venezuela, thefigures were 17.6 percent in 1975-81 and 6.4 percent in 1982-87. Onbalance, the difference in investment rates between the two periods wassmaller for countries such as Colombia and India that did not undergorescheduling or incur debt service arrears during the 1980s than was truefor countries such as Argentina and Bolivia that did have difficulties inmeeting scheduled debt service obligations during this period. At the sametime, investment rates also declined noticeably for several countries suchas Kenya and Zimbabwe that experienced higher debt service obligationsduring the 1980s, but were able to meet them without rescheduling.
It is interesting to observe that the range of public sector investmentrates for the countries in the sample is smaller than that for privateinvestment. As shown in Table 1, public sector investment averaged between5 and 13 percent of GDP during 1975-87 in all of the 23 countries exceptTunisia, with the average for all countries being 9 percent. There is noobvious correlation between high rates of private and public sector invest-ment. For example, public sector investment rates in Singapore andThailand, two of the countries with the highest private investment rates,were double those in Korea and the Philippines, two other countries withrelatively high levels of private investment activity. Indeed, publicinvestment rates in Korea and the Philippines were lower than in manycountries with smaller rates of private sector investment. This no doubtreflects the different emphasis accorded public and private sector activityin different countries. Nevertheless, public sector investment commanded asmaller percentage of GDP than did private sector investment in all but fivecountries in the sample (Bolivia, Pakistan, Sri Lanka, Tunisia, and Turkey).
Ill• Factors Affecting Private Investment Rates
A number of hypotheses have been advanced to explain the variationsin private investment activity observed in developing countries. I/ Thisvariety to some extent reflects uncertainty about the form of the privateinvestment function for these countries. The neoclassical flexibleaccelerator model has been the most widely-accepted general theory ofinvestment behavior, and, empirical tests of the model using data fromseveral industrial countries have been quite successful (see, for example,Bischoff, 1969, 1971; Mines and Catephoros, 1970; Jorgenson, 1967, 1971; andClark 1979). However, it has generally been hard to test this model indeveloping countries, because key assumptions (such as perfect capitalmarkets and little or no government investment) are inapplicable, and datafor certain variables (capital stock, real wages, and real financing ratesfor debt and equity) are normally either unavailable or inadequate.Accordingly, research has proceeded in several directions, in the process
I/ For a more comprehensive analytical overview of private investmenttheory and the impact of macroeconomic policies on private investment indeveloping countries, see Serven and Solimano (1989).
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Identifying a number of economic variables that might be expected to affectprivate investment in developing countries. These efforts, however, havenot yet produced a full-fledged model of investment behavior in developingcountries.
1. Theoretical analysis
Because of the problems inherent in applying the standard neoclassicalmodel to developing countries, one line of research, pursued notably byMcKinnon (1973) and Shaw (1973), has abandoned this model, advancing insteadthe hypothesis that private investment in developing countries is positivelyrelated to the accumulation of domestic real money balances. Underlyingthis hypothesis is the assumption that private investors in these countriesmust accumulate money balances before undertaking investment projects,because of their limited access to credit and equity markets. Because realmoney balances are directly influenced by real deposit interest rates, thereshould be a positive relationship between private investment and realinterest rates in these countries. This approach accordingly disregards thenegative effect of higher real rates on investment via increases in the usercost of capital that normally follows from the neoclassical investmentmodel.
Another line of research has attempted to retain the neoclassicalmodel, but address the analytical and data problems involved in itsapplication, to developing countries, in particular the lack of data and theresource constraints facing private investors in developing countries (see,for example, Sundararajan and Thakur, 1980; Tun Wai and Wong, 1982; andBlejer and Khan, 1984.) Applying the neoclassical model leads to theconclusion that the private investment rate should be negatively related tothe real interest rate as a measure of the user cost of capital. I/ Thesestudies also suggest that the rate of growth of real output (real GDP) percapita should be positively related to the private investment rate, as iscommon in industrial countries. 2/
In addition to the real interest rate and real per capita growth rate,the application of the neoclassical model to developing countries has led toidentifying the public investment rate (the ratio of public investment toGDP) as a factor affecting the rate of private investment in these countries(Blejer and Khan, 1984). However, at the theoretical level the effect ofpublic sector investment is ambiguous. On the one hand, public investmentactivity may be complementary to and thus support private investment,particularly where public investment involves useful infrastructure--
I/ The real interest rate is closer to the spirit of the neoclassicalmodel than are measures of the availability of financing, which some studieshave used in the absence of interest rate data.
2./ This can be readily derived from a flexible-accelerator model with afixed relationship between the desired capital stock and the level of realoutput.
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transportation systems, schools, water and sewage systems, and the like.Projects in these areas tend to raise the expected rate of return on privateinvestment. On the other hand, public sector investment may detract fromprivate investment activity to the extent that it substitutes for or crowdsout private investment. This may occur when the investment involvesparastatal enterprises producing goods that compete with the private sector,or when heavy spending for public capital projects leads to high interestrates, severe credit rationing, or a heavier current or future tax burden(Aschauer, 1989).
Besides the factors derived from the neoclassical investment model,the domestic inflation rate has also been proposed as affecting privateinvestment rates in developing countries, where inflation is less oftencorrelated with a rise in economic output than in industrial countries(Dornbusch and Reynoso, 1989). High rates of inflation adversely affectprivate investment by increasing the riskiness of longer-term investmentprojects, reducing the average maturity of commercial lending, anddistorting the information content of relative prices. In addition,high inflation rates are often considered an indicator of macroeconomicinstability and a country's inability to control macroeconomic policy, bothof which contribute to an adverse investment climate. Thus, the domesticinflation rate should be negatively related to the rate of privateinvestment.
Besides the above hypotheses, private investment activity has beenhypothesized as a positive function of income per capita because of thegreater ability of higher income countries to devote resources to saving.This ability is particularly important given the imperfection of capitalmarkets, since it appears that most investment projects must be financed,at least in substantial part, through domestic savings.
Finally, the presence of large external debt burdens has also beensuggested as a factor reducing investment activity in three ways. First,the higher debt service payments associated with a large external debtreduce the funds available for investment. Second, the existence of a largedebt overhang, in the form of a high ratio of external debt to GDP, canreduce the incentives for investment, because much of the forthcomingreturns from investment must be used to repay existing debt and thereforeacts as a tax on domestic investment (Borensztein, 1989; and Froot andKrugman, 1990). Third, if substantial external debt leads to difficultiesin meeting debt service obligations, relations with external creditors maydeteriorate, thus reducing the amount of trade financing a country canobtain. This in turn may make it harder or more costly to f ima-nee-..-.private•investment, because imports play a major role in most developing-country —investment projects, and the preponderance of all developing country importsare investment-related (Mirakhor and Montiel, 1987),
©International Monetary Fund. Not for Redistribution
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2. Preliminary evidence regarding different factors
As a first look at the evidence regarding the various factors discussedin the previous subsection, it is interesting to compare the average valuesof the various economic variables in countries with above- and below-averageprivate investment rates, and vice-versa. This type of analysis is hardlydefinitive, because other variables are not held constant in the real worldand an apparent relationship between one factor and private investment ratesmay in fact result from movements in a common underlying variable. Still,the information does offer a preliminary look at whether countries with high(equal to or greater than 12 percent of GDP) and low (less than 12 percentof GDP) private investment rates also differ in other economic respects.
Table 2, which reports the average levels for a number of economicindicators in the sample of 23 countries during the 1975-87 period, providessupport for many of the hypotheses outlined earlier. The data suggest, forexample, that interest rates may indeed affect private investment activitythrough their role in mobilizing domestic savings. As shown in Table 2, theaverage real deposit rate on mid-term (6 to 24 month) deposits in countrieswith higher levels of private investment was -0.9 percent, implying anaverage nominal deposit rate just less than the mean rate of inflation. Forthe countries with lower private investment rates, however, the average realdeposit rate was -5.7 percent. The data also suggest that the rate of realGDP growth per capita was greater in the countries with higher privateinvestment rates, averaging 2.1 per cent a year, more than twice the averagefor countries with lower private investment rates. In addition, publicinvestment in these countries may on balance be complementary to privatesector investment, as the average rate of public sector investment in thecountries with higher private investment activity (9.8 percent of GDP) wasslightly larger than that for the countries with smaller private investmentrates (8.3 percent of GDP).
The data in Table 2 support the view that high inflation rates may beinimical to strong private investment activity, as the average inflationrate in countries with higher private investment rates, about 25 percenta year, was far below the average of 137 percent for countries with lowerprivate investment rates. The data also indicate that average per capitaGDP for the eleven countries with mean private investment rates above thesample median of 12 percent of GDP was, at US$1,818, nearly 70 per centlarger than the average for the twelve countries with smaller privateinvestment rates. As for external debt, although countries with higherprivate investment rates experienced somewhat higher external debt to GDPratios, these countries also had somewhat smaller average debt serviceratios (29 versus 32 percent of exports of goods and services), perhapssuggesting an ability to use borrowed funds more efficiently.
A second way of looking at the different hypotheses is to compareprivate investment rates for groups of countries with higher or lower levels
©International Monetary Fund. Not for Redistribution
Table 2, Average Levels of Major Economic Indicators in Selected Developing Countries, 1975-87
privateInvestment
jRate
SingaporeKoreaThailandPhilippinesCosta RicaBrazilMexicoEcuadorVenezuelaTunisiaKenyaColombiaSri LankaArgentinaIndiaTurkeyGuatemalaZimbabwePeruChileUruguayPakistanBolivia
High PrivateInvest, Cos. 4/Low PrivateInvest. Cos. 5/
|26.3!22.2i 16 . 116.0114.2H2.8;i2.7; 12.5i 12.5;12.4
i 12.2i 11.0i 10.9i 10.4: 10.2
: 10.2i 10.09.89.08.97.75.9
i 15.4
RealDepositRate
324-0-2-1-5-7-2-3-222
-210-4-2-3
-214-01
-26
-0
-5
.6
.3
.0
.3
.4
.5
.6
.4
.2
.1
.7
.2 2/
.0
.0
.8
.7
.0
.7
.2
.9
.3
.2
.7
.9
.7
RealPer CapitaGDP Growth
Rate
5.576.844.560.710.481.600.810.67-0.962.070.541.973.14-1.532.862.79-0.37-1.29-0.281.081.492.87-2.08
2.1
0.9
Public SectorInvestment InflationRate \J Rate
12.46.912.16.07.18.68.48.812.916.38.87.912.29.49.111.55.08.17.66.65.20.37.4
9.8
8.3
21161321112502012812231125974112127471568
155
24
61
.8
.9
.4
.9
.1
.4
.2
.4
.5
.2
.3
.3
.4
.3
.1
.3
.4
.2
.5
.6
.5
.4
.7 3/
.7
.1
Per CapitaGDP (in USdollars)
5129161566259025022027192098231051138328
1009297287623211861058934106416341709270728
1818
1083
.17
.43
.36
.02
.51
.17
.99
.82
.61
.78
.18
.72
.42
.73
.65
.33
.50
.18
.28
.70
.04
.04
.46
.5
.5
DebtServiceRatio
1.619.318.629.931.953.556.641.826.017.919.627.325.350.819.532.717.316.554.345.927.829.334.1
28.8
31.7
ExternalDebt toGDP Ratio
16.543.127.956.143.627.842.958.155.646.537.032.142.834.414.731.817.315.856.067.643.838.962.9
41.4
38.2
Sources: Pfefferman and Madarassy (1989); and IMF (1989).I/ As a percentage of GDP.2_/ Based on the effective yield on a 90-day certificate of deposit.3_/ Geometric average.4/ First eleven countries in the table.5y Last twelve countries in the table.
5.6
9.1
©International Monetary Fund. Not for Redistribution
- 10 -
of the relevant economic variables. This is done in Table 3, using averagelevels of private investment for each country weighted by the country'sGDP. I/ The figures in Table 3 indicate that countries with nonnegativereal interest rates, higher average real GDP growth rates, and lower averageinflation and public investment rates also have higher average rates ofprivate investment. The same is true for countries with higher average reallevels of GDP per capita, and lower debt service (but not lower debt-to-GDP)ratios. These results are generally consistent with theoretical expecta-tions. Except for the findings regarding countries with higher- and lowerpublic investment rates, they are also consistent with the data in Table 2.
IV. Econometric Results
To examine more rigorously the various hypotheses outlined above,equations for the private investment rate were estimated for the 23countries in the sample, using a pooled time-series, cross-section approach.A detailed list of the variables and data sources appears in the statisticalappendix to this paper. Because the current values of the real per capitagrowth rate, the per capita GDP level, and the debt service ratio may beaffected by the private investment rate, lagged values of these variableswere used to reduce the possibility of simultaneous equations bias in thecoefficient estimates. In addition, the lagged value of the external debtto GDP ratio was employed, because the information is usually available onlyfor the end of the year and is therefore generally known retrospectively.To capture the effects of country-specific factors, a dummy variable foreach country was included in the specifications. Thus, the equations tookthe following form:
IP/Y = f[RI, GR.-L, IPUB/GDP, CPI, INC.!, (DS/XGS) ,(DEBT/GDP), l> Z],
where
IP/Y - the ratio of private sector investment to GDP,
RI = the real deposit interest rate, as measured by the ratio(1+NINT)/(1+ECPI) , where NINT is the nominal interestrate and ECPI is the expected inflation rate,
GR.-j_ = the lagged percentage change in real GDP per capita,
IPUB/GDP •- the ratio of public sector investment to GDP,
CPI = the percentage change in the country's consumer priceindex ,
!_/ As in IMF (1989), weights were calculated on the basis of eachcountry's average GDP in U.S. dollars during the previous three years.
©International Monetary Fund. Not for Redistribution
- 11 -
Table 3. Average Private Investment Rates over the Period 1975-87For Countries with Selected Characteristics I/
(In Percent of GDP)
Non-negative Real Interest RateNegative Real Interest Rate
High Growth 2/Low Growth
High Public Investment Rate 3/Low Public Investment Rate
High Inflation 4/Low Inflation
High Income 5/Low Income
High Debt Service Ratio 6/Low Debt Service Ratio
High Debt to GDP Ratio 7_/Low Debt to GDP Ratio
13.011.7
12.811.9
12.014.7
11.813.6
13.211.1
11.913.5
14.011.7
Sources: Pfefferman and Madarassy (1989); and IMF (1989).I/ Averages for countries in designated groups, with individual country
observations weighted by 3-year average of country GDPs.2/ Average growth rate of real GDP above 1.4 percent per year.3/ Average ratio of public sector investment to GDP greater than 8.4
percent.4/ Average annual rate of increase in consumer price index above 20
percent.5/ Average per capita GDP (1975-87) above US$1100.6/ Average debt service ratio greater than 29 percent of exports of
goods and services.!_/ Average external debt to GDP ratio greater than 40 percent.
©International Monetary Fund. Not for Redistribution
- 12 -
INC_j_ = the lagged level of per capita GDP in current U.S.dollars,
(DS/XGS)_-j_ — the lagged ratio of external debt service paymentsto exports of goods and services,
(DEBT/GDP) _-j_ - the lagged ratio of the country's stock of exteraldebt to its nominal gross domestic product, and
Z — a vector of country dummy variables, one for eachcountry in the sample, with the value of eachvariable set equal to 1 whenever observations forthat country were entered, and 0 otherwise.
For the real interest rate, three different variants were tried: oneusing the current period value of the percentage change in the consumerprice index as the expected inflation rate; one using the previous year'svalue; and one using the value of the year ahead, which is conceptually thecorrect specification. I/ The best results came from using the value ofthe consumer price change one period ahead, i.e., CPI+-j_, to generate thereal interest rate, In line with the correct specification. Because CPI andCPI j_ may both be affected by the rate of private investment, instrumentalvariables were used for the real interest rate and the current period'sinflation rate, GPI. 2/
This equation was estimated over the entire 1975-87 time period. Inaddition, separate equations were estimated for the two sub-periods 1975-81and 1982-87, to test for the effect of the post-1981 debt crisis -on theresults. The results of all three equations are summarized in Table 4.This table omits the results for the country dummy variables, all of whichwere statistically significant at the 1 percent level. As indicated, theoverall fit of all three equations was were fairly good, with R-squaredstatistics adjusted for degrees of freedom in the 0.7-0.9 range.
I/ The reason is that the real rate of return on an investment during thecurrent period equals (1+the nominal interest rate) deflated by the ratio ofthe next period's price level to this period's, or
Here, both NINT and CPI have been divided by 100, I.e., a 10 percent nominalinterest rate is written as NINT ~ 0.10.£/ The instrumental variables Included all the country dummy variables,
the current value of the public investment rate, and one year lags of allthe other variables.
©International Monetary Fund. Not for Redistribution
Table 4. Regressions for Private Investment Rates I/
RI GR-1
IPUB/GDP CPI ( DS /XGS ) . (DEBT/GDP ) . ]_ N S.E.E.
Entire Sample Period (1975-87)
(1)
-8.285**(-3.06)
0 . 249***(6.50)
0(2
. 080***
.03)-0.004***(-4.02)
0(0
Pre-Debt Crisis
(2)
(3)
- 7 . 844(-1.62)
-1.851(-1.03)
0.210***(3.01)
0 . 209***(5.67)
0(3
0(2
.359***• 17)
.061**
.05)
-0.024**(-2.62)
Debt Crisis
-0.001***(-3.02)
0(1
.084
.32)-0.031***(-2.55)
-0(-2
.033*** 294
.99)0.81 2.38
Period (1975-81)
.870*
.34)
Period (1982
-1(-2
.560***
.87)
-0.043**(-1-73)
-87)
-0.003(-0.21)
-0(-1
-0(2
.041* 156
.40)
.052*** 138
.82)
0.79 2.34
0.92 1.56
I/ Dependent variable is the ratio of private investment to GDP, in percent. Figures in parentheses are estimatedt-statistics. M is the number of observations. R-squared statistic is the adjusted R squared. S.E.E. is thestandard error of estimate. The coefficients of the country dummy variables have been omitted from the table;they were all statistically significant at the 0.01 level.
* Statistically significant at the 10 percent level.** Statistically significant at the 5 percent level.*** Statistically significant at the 1 percent level.
R2INC-1
©International Monetary Fund. Not for Redistribution
- 14 -
The results for equation (1) in Table 4, which reflects the entiresample period equation, supported most of the hypotheses outlined earlier.The estimated coefficient for the ratio of public sector investment to GDP(IPUB/GDP) was positive and significant, suggesting that in this samplepublic sector investment was on balance complementary to private sectorinvestment activity. In addition, the lagged per capita real GDP growthrate (GR. ) was positive and highly significant, while the coefficientsfor the lagged debt service ratio, (DS/XGS).- , and the lagged debt stock,(DEBT/GDP)_i, were both negative and statistically significant at the 1percent level. I/ In addition, the estimated coefficient for theinflation rate (CPI) was negative and highly significant, implying that ahigher inflation rate, other things equal, had a negative impact on theprivate investment rate on countries in the sample. However, the estimatedcoefficient for the lagged value of GDP per capita (INC. ) was positive butinsignificant. Interestingly, the estimated coefficient for the realinterest rate (RI) was negative and statistically significant. This findingis more consistent with the neoclassical investment model than with theMcKinnon-Shaw hypothesis, as it would suggest that high real interest ratesserve more to deter investment by raising the user cost of capital than topromote investment by increasing the volume of financial saving. Supportingthis view is the recent finding in Haque, Lahiri, and Montiel (1990) thatthe interest rate appears to be negatively and highly significantly relatedto domestic investment rates in a multi-equation macroeconomic modelestimated over 31 developing countries for much of the post-World War IIperiod. At the same time, these results should not be taken to suggest thatnegative real interest rates are a good thing. In view of the earlierobservations about interest rate levels in countries with above- and below-average private investment rates, they suggest that high (above the market-clearing level) and positive real interest rates--such as those observed insome Latin American countries during part of 1970s--would tend to reduce theprivate investment rate.
The results of equations (2) and (3) in Table 4, which are estimatedover the 1975-81 and 1982-87 periods, respectively, suggest that thefindings reported in equation (1) mask rather different effects of certainmacroeconomic variables during the two sub-periods. This is confirmed bya simple F test comparing the results in the two sub-periods, which yieldsan F value of 4.4 compared to the critical value of F(30,234) = 1.86 toestablish a significant difference in the estimated coefficients betweensample periods. In equation (2), for example, the estimated coefficientsfor the public sector investment rate, inflation rate, and the lagged debtservice ratio had the same sign and were larger in absolute value than inequation- (1). -Indeed, compared to their values in equatio-n (1) thecoefficient for the domestic inflation rate was more than five times itsabsolute value in the previous equation. This result would suggest that
I./ The significance levels reported here are for one-tailed tests, exceptfor the public investment rate and the real interest rate, which are two-tailed tests.
©International Monetary Fund. Not for Redistribution
- 15 -
higher Inflation rates had decidedly more negative effects on privateinvestment rates during the 1975-81 period. In addition, the estimatedcoefficient on the lagged value of GDP per capita was considerably largerthan in equation (1) and became statistically significant at the 10 percentlevel. By comparison, the estimated coefficient for the lagged ratio ofexternal debt to GDP, though still negative, was now significant at only the10 percent level. This may reflect the generally low and stable debt-to-GDPratios among developing countries during the pre-1982 years, as comparedwith the ratios observed after 1981. It may also indicate high collinearitybetween this variable and the lagged debt service ratio.
In equation (3), which covers the 1982-87 period, most of the variablesthat were significant in equations (1) and (2) either had smaller estimatedcoefficients or were no longer statistically significant. For example, thecoefficient for the real interest rate was barely one-fifth of its absolutevalue in equation (2) and was now statistically insignificant. Theestimated coefficient for the domestic inflation rate was considerablysmaller in absolute value than in equation (1), although still significantat the 1 percent level. The estimated coefficient for the public sectorinvestment rate, though still positive and statistically significant,, wassmaller than in the previous two equations,, although the coefficient forthe lagged GDP growth rate was virtually the same as in equation (2). Inaddition, the estimated coefficient for the lagged debt service ratio wasconsiderably smaller in absolute value than in. the other equations and wasno longer statistically significant. However, the estimated coefficientfor the lagged ratio of external debt to GDP increased in absolute value andwas now significant at the 1 percent level. This suggests that the role, ofa country's debt overhang became more important during the 1982-87 period,which may reflect the increasing gap during this period between actual debtservice payments, as reflected In the debt service ratio, and contractualpayments. The estimated coefficient for lagged per capita GDP, which waspositive and marginally significant for the .1975-81 period, was now negativeand significant at the 1 percent level, contrary to expectations. This mayreflect the sharp decline in private investment rates In higher-income LatinAmerican countries after 1981.
In view of the significantly different results from equations (2) and(3), It seemed useful to estimate a new equation for the entire, sampleperiod that would allow the values of the coefficients for the variousmacroeconomie variables to differ across time periods. This was done bycreating from each of the variables in the specification two variables, onecontaining only those observations .for "the 1975-81 period and the otherholding only those observations for the years 1982-87. The equation wasthen estimated using this expanded set of explanatory variables, with thecountry dummies left unchanged over the two sub-periods. \/ The resultsof this equation are summarized In Table 5.
I/ This essentially means assuming that country-specific factors remaininvariant over time.
©International Monetary Fund. Not for Redistribution
- 16 -
Table 5. Final Regressions for Private Investment Rates I/
EstimatedCoefficient
RI:1975-1982-
1975-1982-
8187
8187
-8-7
00
. 240***
.738***
.227***
.236***
Estimatedt-statistic
-2.-2.
4.4.
9990
3086
BetaCoefficient
-0.-0.
0.0.
751700
128142
I PUB/GDP:1975-1982-
CPI:1975-1982-
1975-1982-
(DS/XGS)1975-1982-
8187
8187
8187
-1 =8187
00
-0-0
10
-0-0
.139*
.063
.006***
.003***
.875***
.683**
.035***
.026**
1.1.
-3.-3.
3.2.
-2.-1.
8756
9060
8022
3686
0.0.
-0.-0.
0.0.
-0.-0.
132069
156170
289162
125102
( DEBT/GDP).!:1975-1982-
Equation
8187
statistics :
-0-0
2/ N
.028*
.023*
= 294
-1.-1.
R2 = 0.82
3759
-0.-0.
S.E.E. = 2
090119
.29
I/ Dependent variable is the ratio of private investment to GDP,in percent.
2/ N is the number of observations, R-squared statistic is theadjusted R squared, and S.E.E. is the standard error of theestimate.
* Statistically significant at the 0.10 level.** Statistically significant at the 0.05 level.
*** Statistically significant at the 0.01 level.
©International Monetary Fund. Not for Redistribution
. 17 -
The figures reported in Table 5 confirm most of the results inequations (2) and (3) of Table 4, The estimated coefficients for the realinterest rate, lagged per capita growth rate, and domestic, inflation rateall had the same sign as before and were statistically significant at the1 percent level or better. However, the coefficient for the public sectorinvestment rate during the 1975-81 period was now.much smaller than .beforeand significant at only the 1,0 percent level, while the coefficient of thisvariable for the 1982-87 period was no longer statistically significant.The estimated coefficient.for the lagged debt service ratio was again largerduring the 1975-81 period, although significant during both periods. Bycomparison, the coefficients for the lagged debt-to-GDP .ratio were uniformlysmaller than in the previous equations and were significant at only the 10percent level. Interestingly, the estimated coefficient for the lagged realGDP level was now positive and quite significant for both the 1975-81 and1982-87 periods, although much larger during the earlier period. Theseresults are more consistent with the hypothesized relationship betweenincome level and. investment rate, while taking into account the falloff inprivate investment rates in many higher-income Latin American countriesafter 1981. Another interesting finding reported in Table 5 is that forseveral variables the differences in estimated coefficients between the twosubperiods are smaller than suggested from equations (2) and (3). Forexample, the estimated coefficients for the lagged debt service ratio andlagged debt-to-GDP ratio in the two subperiods became virtually the same,while the differences between the coefficients for the real interest rateand the domestic inflation rate fell substantially. On the whole, theseresults suggest that most of the macroeconomic variables affected privateinvestment rates in both the 1975-81 and 1982-87 subperiods.
As a further indication of the relative importance of different vari-ables on private investment rates, Table 5 also reports the beta coeffi-cients for the macroeconomic variables in the final estimating equation.These coefficients are unit free and measure the relative impact ofdifferent explanatory variables on the private investment rate. .The betacoefficients indicate that changes in the real interest rate had by far thelargest relative impact on private investment rates, about three times thatof any other variable. The next largest effect came from the.lagged GDP percapita level during the 1975-81 period. The beta coefficients for most othervariables fell in a fairly narrow range, with those for lagged GDP percapita, the domestic, inflation rate, lagged growth.rate, and the publicinvestment rate during 1975-81 being slightly larger than those for thepublic investment rate in 1982-87, the lagged debt service ratio, or thelagged debt-to-GDP ratio. Overall, these results suggest that the impacton private investment rates of these other variables was roughly equal, withthe effects of lagged GDP per capita, the domestic inflation rate, laggedgrowth rate, and the public investment rate for 1975-81 being somewhat"greater than that of the rest. Also noteworthy is the increase in the betacoefficient for the lagged debt-to-GDP ratio, suggesting that the debtoverhang has become more important since the onset of the debt,crisis in1982.
©International Monetary Fund. Not for Redistribution
- 18 -
V. Conclusions
The results of this study provide some support for the hypothesis thatprivate investment rates in developing countries are affected by importantmacroeconomic variables. The econometric tests undertaken support the viewthat real interest and economic growth rates, the domestic inflation rate,external debt burdens (either in the form of high debt service ratios or,following 1981, a high debt-to-GDP ratio), and, to a lesser extent, thepublic investment rate have all been significant determinants of privateinvestment rates in these countries during the post-1974 period. Of thesevariables the domestic inflation rate and the external debt burden appearto have had a negative impact on private investment rates, while economicgrowth rates, the public investment rate, and, for 1975-81, the GDP percapita level have had a positive effect. These results suggest that publicsector investment has been complementary to private investment in thesecountries. There is also evidence that, in accordance with standard theory,high real interest rates have had a negative effect on private investmentrates. At the same time countries with less negative real interest rateshave, on balance, experienced higher rates of private investment.
There is some evidence that a few variables, particularly the domesticinflation rate and public investment rate, as well as per capita GDP level,had a greater impact on private investment rates during 1975-81 thanafterwards. In addition, it appears that the way in which external debtburdens reduced private investment changed between the 1975-81 and 1982-87subperiods. During the former period, when most countries remained currenton their external debt service payments, the debt service payments ratio wasa more significant determinant of private investment rates. During thesecond subperiod, when rescheduling and external arrears became more common,the ratio of the external debt stock to GDP became equally if not moresignificant. On balance, these results provide some support for the viewthat countries with higher growth rates and income levels, more stablemacroeconomic policies (in the form of lower inflation rates), smaller debtburdens, and higher rates of public investment have higher levels of privateinvestment relative to GDP. For the reasons mentioned earlier, however,these findings should be considered suggestive, rather than providing strongevidence for the various hypotheses discussed in the paper.
Because of the close links among saving, private investment, andeconomic growth, it would seem useful to go beyond the partial equilibriumframework of the present study and examine the interactions among invest-ment, .saving, .and .growth in a general equilibrium model. This could Be doneby applying a savings model (such as the one described in Aghevli e_t al.1990) and appropriate growth models (see., e.g., Otani and Villanueva, 1990)to develop a -general equilibrium framework in which separate equations forsavings, private investment, and growth are estimated simultaneously. Sucha project would greatly strengthen the current understanding of causalrelationships among these phenomena in developing countries. It might also
©International Monetary Fund. Not for Redistribution
- 19 -
make It possible to develop more effective policy measures to strengthenprivate savings and investment activity, and thereby raise the long-termrate of economic growth.
©International Monetary Fund. Not for Redistribution
- 20 - APPENDIX
Data Sources for Variables in the Study
The data used In this study come primarily from three sources: GuyPfefferman and Andrea Madarassy, Trends in Private Investment in ThirtyDeveloping Countries (Washington: The World Bank, 1989); InternationalMonetary Fund, International Financial Statistics data file; andInternational Monetary Fund, World Economic Outlook. The first of thesesources provided the data on private and public investment rates for the 23countries in the sample. Except for data on interest rates, all remainingdata came from the Fund's International Financial Statistics and WorldEconomic Outlook data files.
Data on interest rates were compiled from national sources. To focuson the effect of real interest rates on private savings interest rates ontime deposits of 6-24 month maturities at commercial banks were selectedwherever possible, with the specific maturity depending on the country. Thedata selected appear in Appendix Table I. Wherever possible, the maturitieschosen were those in Hanson and Neal (1986). Following are the precisedefinitions of interest rates used:
Argentina -- 1975-76: maximum rates on annual savings deposits;1977-87 interest rates on 30-day certificates ofdeposit;
Bolivia -- minimum rate on peso-denominated 1-year time deposits;
Brazil -- 1975-82: interest paid on bills of exchange at financecompanies; 1983-86: annualized interest rates onsavings deposits; 1987: annual rates on time deposits;
Chile -- 1975-87: annualized interest rates on 30-day timedeposits;
Colombia -- annualized rates on 90-day certificates of deposit;
Costa Rica -- (data missing for 1975-77) 1978-87: "basic rate" onsavings deposits at commercial banks;
Ecuador
Guatemala
India
Kenya
1975-85: interest rate on time deposits at commercialbanks and non-bank financial institutions; 1986-87: rateon 90-day savings accounts (NB: rates for 1975-79 takenas the same as in 1980);
maximum rate on savings deposits at commercial banks;
lowest celling rate on 1-2 year deposits at commercialbanks;
interest rate on 9-12 month deposits at commercialbanks;
©International Monetary Fund. Not for Redistribution
Table I. Nominal Interest Rates on Selected Time Deposits
in 23 Countries, 1975-87 I/
APPENDIX
Argentina
Bolivia
Brazil
Chile
Colombia
Costa rioa
Ecuador
Guatemala
India
Kenya
Korea
Mexico
Pakistan
Peru
Philippines
Singapore
Sri lanka
Thailand
Tunisia
Turkey
Uruguay
Venezuela
Zimbabwe
1975
40.0
11.8
26.5
277.3
25.6
21.5
0.0
9.0
8.0
5.6
15.0
10.0
8.1
7.0
9.5
6.2
7.5
8.0
3.0
9.0
21.0
6.0
5.0
1976
55.0
11.8
38.0
202.1
25.6
21.5
0.0
9.0
8.0
5.6
18.2
8.6
8.5
9.0
10.0
5.5
' 7.5
8.0
3.0
• 9.0
44.0
8.0
4.8
1977
149.8
11.8
44.4
93.9
25.6
21.5
0.0
9.0
6.0
5.6
14.4
12.4
9.1
14.0
10.0
5.3
10.0
8.0
4.0
9.0
48.9
6.0
4.6
1978
132.2
11.8
47.8
57.4
22.0
21.5
0.0
9.0
6.0
5.6
18.6
13.0
9.5
28.8
10.0
5.7
15.0
8.0
4.0
11.3
53.1
6.0
4.3
1979
117.3
12.1
48.8
45.1
23.0
21.5
0.0
9.0
7.0
5.6
18.6
13.8
9.5
31.5
12.0
6.9
15.0
9.0
4.0
17.4
43.0
6.0
4.3
1980
79.2
17.2
60.3
37.4
35.8
21.5
9.0
9.0
7.5
6.0
23.3
21.2
9.5
31.5
14.0
9.2
20.0
12.0
4.0
26.6
51.5
11.3
4.4
1981
154.4
28.0
101.4
40.8
37.4
21.5
9.0
10.0
8.0
10.4
19.0
30.9
10.9
52.0
13.0
10.7
20.0
12.5
4.8
49.2
46.9
14.9
12.0
1982
125.0
30.3
112.5
47.8
38.0
21.8
13.0
12.3
8.0
13.0
10.3
56.5
10.6
55.0
13.9
7.9
15.0
13.0
5.0
50.0
50.6
14.8
10.5
1983
273.9
39.2
157.5
27.9
33.7
23.1
16.0
9.0
8.0
14.1
8.0
53.4
9.5
57.5
14.2
6.7
15.0
13.0
5.0
42.5
66.1
13.9
14.2
1984
381.8
106.4
242.3
26.1
34.8
22.0
22.0
9.0
8.0
12.0
10.0
44.4
10.9
60.0
17.4
7.2
14.0
13.0
5.0
45.0
71.1
12.5
10.5
1985
294.1
68.8
249.8
31.6
35.3
20.0
22.0
9.0
8.5
12.0
10.0
70.7
9.8
32.8
19.8
5.5
12.0
13.0
5.7
50.2
84.1
10.5
10.5
1986
59.9
62.4
75.5
19.0
31.2
18.0
24.8
10.3
8.5
12.0
10.0
95.7
8.8
41.9
11.5
4.1
8.5
9.5
6.8
52.0
61.2
8.9
10.3
1987
144.2
29.1
401.0
25.2
31.1
17.5
32.0
11.0
9.0
10.0
10.0
96.0
8.9
29.5
10.0
3.5
8.5
9.5
8.2
45.7
62.8
8.9
10.2
For definitions and sources of interest rate series, see text in Appendix.I/
©International Monetary Fund. Not for Redistribution
- 22 - APPENDIX
Korea -- rate on commercial bank deposits of more than 1 year;
Mexico -- interest rate on 6 month deposits at commercial banks;
Pakistan -- 1975-80: weighted average of interest rates on 6-12month deposits; 1981-87: interest rates paid onprofit/loss-sharing accounts;
Peru -- 1975-86: interest rates on 6-12 month time deposits atcommercial banks with head offices in Lima; 1987: rateson 91-180 day certificates of deposit at commercialbanks;
Philippines-- rates on 6-12 month deposits at commercial banks;
Singapore -- interest rate on 1-year deposits at commercial banks;
Sri Lanka -- actual or minimum interest rates on 1-year deposits atcommercial banks;
Thailand -- rate on 1-2 year deposits (1985-87: ceiling rate);
Tunisia -- 1975-81: maximum rate on 6-12 month deposits; 1982-87:rate on 3-6 month deposits;
Turkey -- interest rates on 12-24 month deposits;
Uruguay -- average interest rates on deposits of 6 months or more;
Venezuela -- rates on time deposits of 6-12 months (1979: rate on6 month deposits); and
Zimbabwe -- interest rate on deposits of 12 months or more, fromReserve Bank of Zimbabwe, Quarterly Economic andStatistical Review. December 1988.
©International Monetary Fund. Not for Redistribution
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